Emma is the chief operations engineer of Volvo responsible of depreciation processes. She is receiving her salary as and every month she deposits 10% of her salary to a savings account that pays her 0.2% monthly. This year Volvo has developed a wind tunnel for the cost of 50M (cost basis) to be used for the next 10 years and Emma is going to decide on the depreciation schedule. Volvo will allow other teams to use this wind tunnel and generate a profit of 25M every year, for the next 10 years. The to rate is currently 1 = $11 this year, and every year the $ loses 6% value againts the . The salvage value of this wind tunnel at the end of 10 years will be 0. Emma can depreciate this wind tunnel by using two different methods: sum-of-the-years-digits approach (which we did not cover in the lectures, but you can Google it and find more details online on how to use it) or Declining Balance with X% with a switch to Straight Line. The depreciation period will be 10 years in both cases. Volvo's MARR is 10%. Moreover, Volvo is also going to participate to 20 F1 races every year for the next 10 years and Emma has been given free tickets to participate to each race as a bonus for her depreciation efforts, where each ticket has a price of 1,500. If Emma is indifferent between sum-of-the-years-digits approach and Declining Balance with X% with a switch to Straight Line approach, what is X? Emma is the chief operations engineer of Volvo responsible of depreciation processes. She is receiving her salary as and every month she deposits 10% of her salary to a savings account that pays her 0.2% monthly. This year Volvo has developed a wind tunnel for the cost of 50M (cost basis) to be used for the next 10 years and Emma is going to decide on the depreciation schedule. Volvo will allow other teams to use this wind tunnel and generate a profit of 25M every year, for the next 10 years. The to rate is currently 1 = $11 this year, and every year the $ loses 6% value againts the . The salvage value of this wind tunnel at the end of 10 years will be 0. Emma can depreciate this wind tunnel by using two different methods: sum-of-the-years-digits approach (which we did not cover in the lectures, but you can Google it and find more details online on how to use it) or Declining Balance with X% with a switch to Straight Line. The depreciation period will be 10 years in both cases. Volvo's MARR is 10%. Moreover, Volvo is also going to participate to 20 F1 races every year for the next 10 years and Emma has been given free tickets to participate to each race as a bonus for her depreciation efforts, where each ticket has a price of 1,500. If Emma is indifferent between sum-of-the-years-digits approach and Declining Balance with X% with a switch to Straight Line approach, what is X
